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Trade Magazine Hits the Net,
And Renders Itself Obsolete

By

Jesse WongStaff Reporter of The Wall Street Journal

Updated June 26, 2000 12:01 a.m. ET

For years, China Food Industry Magazine has brought together Chinese buyers and foreign suppliers of food ingredients and processing equipment. Now comes FoodPacific.com (www.foodpacific.com ), an Internet marketplace that targets the same audience, offering the market insight that the magazine offers, as well as transaction services for buyers and sellers. Bad news for the magazine? Yes, though perhaps not for Hong Kong-based entrepreneur Ed Lupton, who is behind both the dot-com and the magazine.

At a time when many traditional publications are trying to adapt to the Internet by putting their contents online, Mr. Lupton has looked ahead to a day when Web marketplaces become so efficient that there may be little need for trade publications in any form. So, instead of striving to retool China Food Industry, Mr. Lupton is focusing on creating the very marketplace that could make the magazine obsolete.

Some 25,000 copies of the Chinese-language magazine are distributed free every month to food-processing industry executives in China, and its advertisers are mostly suppliers in the West and Japan. Mr. Lupton is counting on these two groups to become primary users of FoodPacific.com, which aims to be a kind of central computer system for market insight and transaction services. On the site, suppliers have cybershop fronts for displaying their wares, and customers, at a click of the mouse, can order merchandise and track its progress from warehouse to warehouse.

Such a metamorphosis from information medium into electronic marketplace may not be feasible for all types of publishing. But it is less radical a change for Mr. Lupton's eight-year-old publishing and printing business, MediaCom Holdings Ltd., whose role includes bringing buyer and seller together with its trade publications. So far, Pacific Netmarkets Ltd., the new company created by the 33-year-old Briton to operate his Internet ventures, doesn't seem to lack believers. Its management includes high-level recruits from Boston Consulting Group and Lehman Brothers. Its financial backers include J.H. Whitney, a U.S. venture capital firm that has put up US$10 million in equity funding.

Launched officially in April, Pacific Netmarkets is in the formative stage. Besides FoodPacific.com, it also operates PacificRx.com, an online pharmaceuticals marketplace spawned by China Hospital, a MediaCom trade publication for Chinese hospital administrators. The Web ventures eventually are expected to supplant the trade magazines, although Pacific Netmarkets executives say they aren't sure when that will happen.

Closely held MediaCom says it had revenues of US$25 million last year, 55% to 60% of which were from its commercial printing business. The publishing and magazine distribution business, which is separate from the printing business, accounted for the rest. Jesse Wong spoke with Mr. Lupton, chairman and chief executive of both MediaCom and Pacific Netmarkets. This is an edited transcript.

AWSJ: What were the factors that shaped your Internet strategy?

Mr. Lupton: It started in early 1999 when we saw the Internet as a threat. Initially our thinking was defensive. In October [as Internet investments boomed] there was an opportunity to raise capital, which opened up the possibility for us to do much more than act defensively.

AWSJ: How do you perceive this Internet threat?

Mr. Lupton: The threat isn't the same for trade publications as consumer publications. If you're a subscriber to Vogue and GQ, the Internet isn't what it's about. You want the touch and the feel of the hard copy. But if you're a subscriber to a trade publication, you want information you can act on, and you want to have results. It's about business, it's about timeliness and it's about interactivity. The World Wide Web can offer all of that; plus, a lot of the information that is on the Web is available free, whereas our hard copies carry printing and distribution costs that must be covered somehow. Unless we change, a Web player could easily erode our business.

AWSJ: How much has your business changed then?

Mr. Lupton: We aren't changing from hard copy to Web publishing, where we continue to bring you the latest about the food industry. What we've done is change the whole business. We're moving from being a food-industry magazine to a food-industry trader. At the core is this belief that with the Web, you could create interactivity that could turn into trading communities. If you see yourself merely as a magazine that is migrating to the Web, you're closing yourself to other opportunities.

AWSJ: Which is the most critical part in this process?

Mr. Lupton: I think everything is critical. You can't do it in half-measures. First of all you have to reinvent the organization and communicate to everyone what the issues are, tell them there's a change in the landscape and they must accept it and plan for it. You also need strategy, you need technology, you need capital and you need transactional activity.

AWSJ: To get all this done you have to recruit the right people, especially at the top. How do you structure your incentives for Pacific Netmarkets?

Mr. Lupton: I want to emphasize that everyone senior is taking a pay cut from their previous jobs. At the director level we've got people taking as much as an 80% pay cut. Of course they participate in the potential upside [in the form of stock options]. But in our situation it's hard to attract these people unless you have the right kind of culture and environment that makes them feel convinced there is a potential upside.

AWSJ: Where do you stand in terms of business at the moment?

Mr. Lupton: There isn't a lot at the moment. For the food site we've just started to sell advertising and storefronts, and we're looking at annualized e-commerce revenues of US$1 million at the end of one year. The medical side is in the process of developing a content site to help buyers in the procurement process. We have a third e-commerce site where we sell printing jobs to customers in the U.S. and Europe. With this one we're looking to do US$3 million to US$5 million in printing jobs by the end of this year.

AWSJ: Has the downturn in Internet stocks since March affected you?

Mr. Lupton: Any kind of funding is harder to come by now. There's a lot more scrutiny from potential investors. But if you've passed the concept stage, and if you're executing according to your business plan, you're likely to do all right. We've raised US$10 million, and we believe we're on track to raise another US$20 million to US$30 million in the next two to three months.